Question 1

When investors buy stock with borrowed funds, this is sometimes referred to as

Accepted Answer

A) use of proxy. 
B) purchasing stock on margin. 
C) a margin call. 
D) a margin residual claim.

Question 2

Program trading

Accepted Answer

A) is commonly used to reduce the susceptibility of a stock portfolio to stock market movements. 
B) may involve the purchase of stocks that become "underpriced." 
C) may involve the sale of stocks that become "overpriced." 
D) can be combined with the trading of individual bonds to create portfolio insurance. 
E) none of the above

Question 3

The "trade-though rule" established by the SEC requires that an order for NYSE-listed stocks must be executed on the exchange that offers the best price for the investor.

Accepted Answer

A) True 
 B)False

Question 4

The exchange rate risk associated with international trading of stock has been reduced by

Accepted Answer

A) information available on the Internet. 
B) extensive computerization of stock exchanges. 
C) the conversion of many European countries to a single currency. 
D) the Eurolist system.

Question 5

The NYSE defines ____as the simultaneous buying and selling of a portfolio of at least 15 different stocks that are contained within the S&P 500 index values at more than $1 million.

Accepted Answer

A) direct access brokering 
B) electronic communication networking 
C) program trading 
D) regulation of stock trading

Question 6

The present margin requirement is that at least ____ percent of an investor's invested funds must be paid in cash.

Accepted Answer

A) 20 
B) 30 
C) 40 
D) 50 
E) none of the above

Question 7

You purchase a stock with cash, and you earn a negative return on the stock.If you had purchased the stock with 60 percent cash and 40 percent borrowed funds, your return on your investment would have been

Accepted Answer

A) positive. 
B) more negative than if you had covered the entire investment with cash. 
C) negative, but more favorable than if you had covered the entire investment with cash. 
D) zero.

Question 8

Which of the following statements is incorrect with respect to Regulation Fair Disclosure (FD)?

Accepted Answer

A) It required firms to disclose relevant information broadly to investors at the same time. 
B) It restricts firms from providing analysts with information that they could use before the market is aware of the information. 
C) It requires firms to announce a change in expected earnings to all investors and other interested parties at the same time. 
D) It prohibits firms from communicating with analysts after a news announcement is made to all investors. 
E) All of the above are correct with respect to Regulation FD.

Question 9

When a brokerage firm demands more collateral from investors who have borrowed from the brokerage firm to buy stocks, it is making a

Accepted Answer

A) margin call. 
B) short sale. 
C) proxy fight. 
D) hedge.

Question 10

____ facilitate transactions on the New York Stock Exchange by executing stock transactions for their clients.

Accepted Answer

A) Floor brokers 
B) Capstone members 
C) Specialists 
D) None of the above

Question 11

The SEC's ____ reviews the registration statement files when a firm goes public, corporate filings for annual and quarterly reports, and proxy statements that involve voting for board members or other corporate issues.

Accepted Answer

A) Division of Corporate Finance 
B) Division of Market Regulation 
C) Division of Enforcement 
D) none of the above

Question 12

Trading halts are intended to ensure that the market has complete information before trading on news.

Accepted Answer

A) True 
 B)False

Question 13

The maintenance margin is the minimum amount of the margin that investors must maintain as a percentage of the stock's initial purchase price.

Accepted Answer

A) True 
 B)False

Question 14

When investors sell short, they are essentially lending the stock to another investor and will ultimately receive that stock back from the investor to whom they lent it.

Accepted Answer

A) True 
 B)False

Question 15

The Division of ____ of the SEC regulates the fair and orderly disclosure trading by ensuring honest practices by various organizations that facilitate the trading of securities.

Accepted Answer

A) Corporate Finance 
B) Enforcement 
C) Administration 
D) Market Regulation

Question 16

Which of the following statements is incorrect?

Accepted Answer

A) In a short sale, investors place an order to sell a stock that they do not own. 
B) Investors sell a stock short when they anticipate that its price will rise. 
C) When investors sell short, they will ultimately have to provide the stock back to the investor from whom they borrowed it. 
D) Short-sellers must make payments to the investor from whom the stock was borrowed to cover the dividend payments that the investor would have received of the stock had not been borrowed.

Question 17

Exhibit 12-1
Mark would like to purchase a stock priced at $70.The stock is not expected to pay any dividends in the coming year.He can either put up the entire amount and purchase the stock, or borrow $35 from his brokerage firm at an annual interest rate of 12 percent and put up the remainder.Mark thinks he can sell the stock for $100 after one year.
-Refer to Exhibit 12-1.If Mark borrows from his brokerage firm, his estimated return on the stock would be ____ percent.

Accepted Answer

A) 42.86 
B) 85.71 
C) 73.71 
D) 30.00

Question 18

A relatively high percentage (such as 3 percent) of the ratio of the number of shares sold short divided by the total number of shares outstanding suggests a large amount of short positions in the market, which implies that a relatively large number of investors expect the stock's price to decline.

Accepted Answer

A) True 
 B)False

Question 19

A short seller

Accepted Answer

A) anticipates that the price of the stock sold short will increase. 
B) earns the difference between what he initially paid for the stock versus what he later sell the stock for. 
C) makes a profit equal to the difference between the original selling price and the price paid for the stock, after subtracting any dividend payments made. 
D) is essentially lending the stock to another investor and will ultimately receive that stock back from that investor. 
E) none of the above

Question 20

The short-interest ratio is the shares sold short divided by the

Accepted Answer

A) average shares purchased over a recent period. 
B) average daily trading volume over a recent period. 
C) interest rate paid on the short sale. 
D) average daily trading volume on other stocks from the same industry. 
E) none of the above

Exam 12: Market Microstructure and Strategies

When investors buy stock with borrowed funds, this is sometimes referred to as

Program trading

The "trade-though rule" established by the SEC requires that an order for NYSE-listed stocks must be executed on the exchange that offers the best price for the investor.

The exchange rate risk associated with international trading of stock has been reduced by

The NYSE defines ____as the simultaneous buying and selling of a portfolio of at least 15 different stocks that are contained within the S&P 500 index values at more than $1 million.

The present margin requirement is that at least ____ percent of an investor's invested funds must be paid in cash.

You purchase a stock with cash, and you earn a negative return on the stock.If you had purchased the stock with 60 percent cash and 40 percent borrowed funds, your return on your investment would have been

Which of the following statements is incorrect with respect to Regulation Fair Disclosure (FD) ?

When a brokerage firm demands more collateral from investors who have borrowed from the brokerage firm to buy stocks, it is making a

____ facilitate transactions on the New York Stock Exchange by executing stock transactions for their clients.

The SEC's ____ reviews the registration statement files when a firm goes public, corporate filings for annual and quarterly reports, and proxy statements that involve voting for board members or other corporate issues.

Trading halts are intended to ensure that the market has complete information before trading on news.

The maintenance margin is the minimum amount of the margin that investors must maintain as a percentage of the stock's initial purchase price.

When investors sell short, they are essentially lending the stock to another investor and will ultimately receive that stock back from the investor to whom they lent it.

The Division of ____ of the SEC regulates the fair and orderly disclosure trading by ensuring honest practices by various organizations that facilitate the trading of securities.

Which of the following statements is incorrect?

A relatively high percentage (such as 3 percent) of the ratio of the number of shares sold short divided by the total number of shares outstanding suggests a large amount of short positions in the market, which implies that a relatively large number of investors expect the stock's price to decline.

A short seller

The short-interest ratio is the shares sold short divided by the